Businesses pay a fee for every credit or debit card transaction, called an interchange fee. This fee goes to the card issuer, and the amount varies based on several factors.

Understanding interchange fees helps businesses manage their payment processing costs and make informed decisions about accepting cards.

In this article, you’ll learn about the different factors that contribute to interchange fees. 

About interchange fees

When a customer pays with a credit or debit card, several fees are involved in processing that payment. One of the biggest is the interchange fee, which compensates the customer's bank for facilitating the transaction.

The process involves the following fees:

• Your business's bank (the acquirer) pays the fee upfront to the customer's (cardholder’s) bank.
• You then reimburse your bank for this fee, along with a few others: 
  • Acquirer markup: A fee from your bank for their service.
  • Card scheme fee:  A fee charged by the card network (examples: Visa, Mastercard) for facilitating the transaction.

Interchange fees typically constitute the largest portion of card processing expenses. It’s important for businesses to have a comprehensive understanding of these fees to effectively manage transaction costs.

Determining costs

365pay supports a variety of payment types, but not all are enabled by default due to varying costs. This allows you to tailor your payment options based on your business needs and regional preferences.

Here's what you need to know:

• Different card schemes have different costs. For example, American Express, Visa, and Mastercard may have higher processing fees.
• You can choose which payment types to enable for your business.
• 365pay adjusts rates based on the cost of each payment scheme. Higher-cost schemes will generally have higher rates.

This approach gives you greater control over your payment processing costs and allows you to offer the most relevant payment options to your customers.

Interchange fees are influenced by a variety of factors. Here's a brief overview of the key elements that determine these rates:

Card scheme

As mentioned previously, not all card schemes cost the same. This directly influences the interchange fee rates.

Transaction type

The way a transaction is processed—in-person, online, or over the phone—affects the interchange fee. In-person transactions typically have lower interchange fees than online or phone transactions because they involve less risk. For example, when a customer pays for a meal in person, you can verify their identity and the card's validity, reducing the likelihood of fraud or chargebacks. Online and phone transactions carry a higher risk of fraud, as the cardholder's identity is not physically verified. This higher risk translates to higher interchange fees.

Dining method

The type of transaction significantly impacts the risk level and associated fees. Here's a breakdown:

• Dine-in: Lowest risk. The customer is present and consumes the meal immediately, reducing the likelihood of disputes or refunds.
• Takeout: Slightly higher risk. There's a possibility of order errors or customer dissatisfaction after leaving the premises.
• Delivery: Higher risk due to potential issues like incorrect orders, late deliveries, or damaged goods, increasing the chance of refunds.
• Catering (Pickup and Delivery):  Highest risk. Pre-orders placed well in advance increase the likelihood of cancellations, changes, or unforeseen issues that could lead to refunds.
• Top Up:  (Adding funds to a customer account) -  Low risk, as the funds are prepaid and can be used for future purchases.
• Deposit: (A payment made to secure a future purchase or service) - Moderate risk, as the customer may request a refund if plans change.
• Reservation: (Securing a table or service without a payment) - Low risk, as no financial transaction is involved.
• Reservation Deposit: Moderate risk, as the customer may request a refund if they cancel the reservation.

Local vs. foreign cards

Transactions from foreign cards cost more. Special deals between certain countries, like the US and CA or EU and UK, can change these fees.

Tips on receipt

Accepting tips written on receipts can sometimes lead to higher processing fees due to the risk of human error. For example, if a server misreads a handwritten tip and enters a higher amount than intended, it could result in a chargeback or processing complications. This potential for errors is reflected in the associated fees.

After defining your desired rates, you can save them as reusable Rate Profile templates. These templates can then be applied to different environments or business scenarios, ensuring consistency and simplifying rate management across your organization. For more information about creating Rate Profile templates, refer to Set up and manage 365pay Rate Profile.